All commercial properties will contain ‘plant and machinery’ for tax relief purposes, regardless of whether they are kept for investment or owner-occupation purposes. Fixtures such as heating and water assets, electrical items and sanitation systems will all sit within this classification for the purposes of embedded capital allowance claims for property development businesses.
Capital allowances have the potential to influence the development of a business case when developing project plans and setting budgets. As the property developer is able to deduct their capital allowances from their taxable profits, these can reduce the total cost of a new-build or property purchase significantly, making proposals more attractive to potential investors and guarantors and, of course, reducing overall cost and improving cashflow.
Typical assets that are included in embedded capital allowances for property development businesses include:
Particularly asset-rich properties include: office premises; retail and industrial buildings, leisure businesses such as pubs, hotels, restaurants and nightclubs; as well as care homes and hospitals.
There are considerable tax reliefs available through capital allowance claims on items such as these, with the value of the claim for each directly related to the depreciated value of the qualifying assets. The percentage of the annual depreciation will depend on both the size of the business and also the item claimed.
There is no time limit to when claims can be made for all properties bought or built prior to 2012 so, if a property business has not previously claimed for embedded capital allowances, then it is certainly worthwhile investigating the potential for a new claim.
From April 2012 there are new rules applying to the sale and purchase of second-hand property which, by and large, impose a 2-year time limit on buyers where previous claims have been made for capital allowances.
Many firms have simply not made use of these capital allowance claims because the items are simply “hidden” from the usual capital allowance claims. This is why they are known as “embedded” capital allowance claims, as they often form part of the building structure itself and may have been overlooked on previous capital allowance claims.
In addition, Embedded Capital Allowances for property businesses will require specialists in this area and experienced surveyors to vigilantly inspect the structure of any buildings to determine what allowances can be claimed. From this survey, an accurate inventory of all qualifying items can be made and will serve as the foundation of the claim, before being independently valued to ensure correct values and allowances are being used. Understandably, this requires a specific skillset that many local accountants simply do not offer, and so many embedded capital allowance claims are not being made.
The law governing embedded capital allowances for property businesses can be particularly complex in the instance of second-hand property, with the average accountant and surveyor not skilled in the required tax knowledge to be able to calculate the claim, due to the requirement for surveying-based tax valuation exercises.
At Meta Tax, we are specialised in this area and can work as a stand-alone provider to you or alongside your existing accountant, dependent on how you would prefer to operate. Capital allowances claims are ideally suited to being dealt with on a stand-alone basis separately to other tax matters and we work alongside other advisers without any conflicts of interest or scope overlap issues occurring.
If you would like to learn more about our processes, fees and how we can claim for you, then please contact a member of our experienced team.
You can view your eligibility and potential claim total using our ECA calculator